Business Model Innovation: A Process Model

Abstract

What is business model innovation? A business model is much more than a description of a particular product or service. In addition to describing the offering itself, it lays out the value proposition behind it (i.e., how it creates value for a defined set of customers). It also describes the capabilities and resources needed to execute that value proposition and how the organization will generate profits from doing so. The key stages of business model innovation are exploration, pattern-finding, concept development, prototyping, piloting, and scaling. This technical note examines each of the stages in more detail, with suggested techniques along the way. It includes worksheets for students on value chain analysis, concept development, and piloting. The note is meant to be used in conjunction with “Leading Organic Growth: Module Caselets” (UVA-BP-0541), which also includes an instructor's teaching note that outlines a course module.

Excerpt

UVA-BP-0538

June 30, 2009

BUSINESS MODEL INNOVATION: A PROCESS MODEL

What is Business Model Innovation?

Before we talk about business model innovation, it is important to define what we mean by the term business model. A business model is much more than a description of a particular product or service. In addition to describing the offering itself, it lays out the value proposition behind it (i.e., how it creates value for a defined set of customers). In addition, it describes the capabilities and resources needed to execute that value proposition, and how the organization will generate profits from doing so. In other words, a business model lays out both how an organization creates value with a particular offering and how it captures value as a result of doing so.

Focusing on business models brings a broader perspective to the idea of innovation. If the innovation process focuses on just the offering itself, it misses many opportunities to create better value for customers and to improve profitability for the firm. New products and services are part of the story, of course, but other aspects of the business model, such as how a firm interacts with value chain partners to finance, produce, market, and distribute these offerings, can be equally important. Consider Dell's entry into the PC business. At the time, the change in the physical PC product that Dell sold relative to its competition was a minor aspect of its success; nearly all the innovation lay with how it interacted with customers, how it financed the business, and the capability set Dell built internally to deliver it.

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Keywords: concept development, piloting, Learning Launch